Gov. Patrick calls for income-tax hike, sales-tax decrease

BOSTON -- Gov. Deval Patrick asked the Legislature on Wednesday to hike the state's income tax from the current 5.25 percent to 6.25 percent, while also calling for a reduction in the state sales tax.

The proposed changes would help support $2 billion in new spending on transportation and education, the governor said in his annual state of the state address to a joint session of the Legislature.

"There is no good time to raise taxes. I know how tough times have been on the people and families of the commonwealth," Patrick said, as the House chamber fell silent.

"I would not ask if I did not believe in my heart that investing meaningfully today in education and transportation will significantly improve our economic tomorrows. But because we all have a stake in that future, we should all contribute to paying for it."

The proposed change in the income tax rate would also include a doubling of personal exemptions for all taxpayers and eliminate a number of itemized deductions, to make the tax code simpler and fairer, he said.

Patrick proposed decreasing the sales tax from the current 6.25 percent to 4.5 percent, while requiring that in the future all proceeds from the sales tax go to a public works fund that will support transportation and other public infrastructure. Under the plan the sales tax would be off limits to any other state programs.

Currently, 20 percent of sales tax proceeds are dedicated to public transit.

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Patrick said the changes would make the state's tax code more progressive while also keeping Massachusetts competitive with most neighboring states.

A report from the state board of transportation received by Patrick earlier this week called for $1 billion a year to maintain and modernize the state's transportation system. The report offered a range of revenue options, including possible hikes in income, sales or gasoline taxes.

The report detailed a chronically underfunded system that remains burdened with debt from the Big Dig highway project and other past commitments.

In his speech, Patrick also outlined an ambitious plan this week to expand access to education for students from birth through high school.

The plan would cost $550 million in its first year, increasing to nearly $1 billion annually over the next four years. It would provide universal access to early education from birth through age 5, fully fund K-12 education and allow for extended school days in high-need schools. The plan would also aims to make college more affordable and let community colleges expand efforts to provide students with critical skills training.

Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation, estimated that increasing the income tax to 6.25 percent would yield about $2.3 billion annually, before accounting for adjustments in exemptions or deductions.

"Clearly the changes make the state's tax system more progressive, but it is a large increase to impose on those who make the decisions whether to invest in Massachusetts, especially in a fragile economic environment," Widmer said.

The state's current income tax rate ranks 30th highest among states that levy an income tax, according to the most recent analysis by the Washington-based Tax Foundation. But because Massachusetts is a wealthier state, it has one of the nation's highest per-capita income tax payments.

Massachusetts voters previously approved a ballot question in 2000 to gradually lower the income tax rate from 5.95 percent to 5 percent.

In 2002, the Legislature froze the rate at 5.3 percent, but also added a mechanism that would allow the rate to fall in increments of .05 percent if growth in annual revenues meets certain benchmarks.

Patrick, a Democrat who has ruled out seeking a third term in 2014, said he encouraged debate over his tax proposals, "But this time, instead of sinking in the same old slogans, let's have a serious, fact-based debate," he said.

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